What a wind up

Increase in number of firms being wound up by creditors

Insolvency statistics published today by the government’s Insolvency Service reveal that there has been a sharp increase in the number of firms being wound up by creditors in the past three months. The number of compulsory liquidations, where a creditor asks the courts to close down a business due to non-payment of debts, increased by nearly 20% compared to the previous quarter.

This looks like a worrying trend, showing that many firms are struggling to pay their way in the continuing economic gloom. Creditors are becoming impatient – many will be suffering with their own financial problems - and they are increasingly prepared to follow through on threats to wind up businesses that cannot afford to pay their bills.

Whilst it may be tempting to keep making promises of payment to creditors, when those promises are broken, the consequences can be catastrophic. The good news is that there are ways of dealing with mounting debts that will allow the company to continue and the sooner that a business owner takes advice, the more palatable the options that are available.

In particular, a Company Voluntary Arrangement (CVA) can be put in place with the help of a licensed insolvency practitioner to protect the company from legal action whilst a turnaround plan is followed, allowing a company to recover from its cash-flow problems. In recent months, Moorhead Savage has set up three CVAs for businesses in the Sheffield City Region, safeguarding dozens of jobs in the process.

If you would like to chat about how we can help your business, call me today on 01709 331300.

Shops 'til they drop

What has caused the sudden wave of retail insolvencies?

It has been a bad few days for retailers. A number of well-known names have succumbed to the effects of the retail slow-down, with Jane Norman and Habitat appointing administrators, TJ Hughes reportedly on the brink of entering administration and an announcement from chocolatier Thorntons that they intend to close up to half of their high street shops.This has come in the wake of retail figures for May that showed sales had slumped by 1.4%, reversing an increase of 1.1% the previous month.

Many retailers have been struggling for some time to keep their heads above water, with shoppers choosing to put off major purchases in the face of increasing economic uncertainty. Increasing food and fuel prices have hit consumers hard and many are concerned about job insecurity. The easy availability of credit that stoked the high street spending boom of the last decade is long gone. Shops have suffered from poor cashflow and slim margins, particularly where they are servicing high levels of borrowing.

But why the sudden wave of insolvencies? Traditionally, landlords collect rental payments from their tenants on a quarterly basis, in advance. The end of June sees another 'quarter day' when many retailers' rents will fall due for payment. With little opportunity to re-let shops to new tenants, landlords will be tempted to enforce harshly the terms of their existing leases, to prevent a melt-down of rental income. However, if landlords fail to work with their tenants when times are hard, they face the possibility of losing their tenant altogether if the tenant becomes insolvent. By using an administration procedure, struggling retailers are protected from their landlords taking action to lock them out whilst a new buyer is found, and a potential purchaser will often have the upper hand in any negotiations over future rents.

And what effect will this have on suppliers? When large firms become insolvent, they often leave many small suppliers high and dry, with little or no prospect of repayment. This can have a knock-on effect on their viability, and I'm afraid that many smaller businesses may be hit hard by the failure of these high street names.

But as always, the message is that help is at hand, and the sooner that advice is sought, the more palatable the options will be. Just because a major customer has let you down, it doesn't have to mean the end of your business as well. Call Paul Moorhead of Moorhead Savage today on 01709 331300 and find out what we can do to help.

More help for troubled companies?

Government consults over 'restructuring moratorium'

The Government has announced proposals for a restructuring moratorium to protect companies whilst a rescue plan is put in place to help save businesses and preserve jobs.  A moratorium is basically a protected ‘breathing space’ during which no action can be taken against the company by its creditors. The moratorium is aimed at companies where the underlying business is fundamentally viable but because of the prospect of future insolvency or financial distress there is a need to protect the business from creditors whilst some restructuring is carried out. The moratorium is proposed for use alongside the existing Company Voluntary Arrangement or Scheme of Arrangement procedures.

The proposals provide for a moratorium which would last for three months, which would commence following a court hearing at which creditors could be represented. The company would continue to operate under the existing management and directors however they would be bound by a set of obligations and potential sanctions for misuse of the procedure. A licensed insolvency practitioner would be involved at key stages to help safeguard the interests of creditors and other stakeholders.

I welcome this consultation as I have been an advocate of this type of moratorium for many years. The CVA procedure is often frustrated by the lack of any effective moratorium – although a moratorium is technically available to qualifying companies that are proposing a CVA, the requirements are widely considered to be so onerous that they are seldom used by IPs. This is in stark contrast to the Interim Order that is available for debtors who are proposing Individual Voluntary Arrangements (IVAs) where rapid and straightforward protection is available to allow a breathing space whilst an IVA isformulated and put forward to creditors.

The consultation ends in the middle of October so I eagerly await the Government’s response. This could be a timely measure which could have a real impact in terms of saving businesses and jobs.

'Corporate undertakers' become 'company doctors'

Research shows that the insolvency profession is good for the economy

It's great to have some good news about the economy and about the insolvency profession. Research carried out by ComRes, a leading polling and research agency, shows that the UK’s insolvency industry helped to save nearly two million jobs in companies going through insolvency and rescued around six thousand (5,851) businesses last year. In addition, the UK’s Insolvency Practitioners who work on corporate insolvencies spend nearly a quarter of their time on preventing insolvencies rather than dealing with companies that have already gone to the wall.

Hopefully this will go some way towards changing people's opinions of what insolvency practitioners like me actually do. Before I joined the profession, my own experience of dealing with an insolvency practitioner had not been entirely positive. I often think back to that time and as a result I am determined to be the type of practitioner who is focussed on delivering the right advice at the right time, concentrating on preserving businesses and jobs, rescuing companies and keeping people out of bankruptcy where possible and practical.

My goal is to give balanced, impartial advice on all the options, to allow people to make their own informed decision. Business owners know far more about their business than I ever will, so my job is to offer the various tools in my insolvency 'toolbox' and help them understand how they can help deal with debt and insolvency problems in their individual circumstances.

But I can't work miracles. I can't turn back the clock and I can't wave a magic wand. The sooner that I am asked to help, the more options there will be and the more chance we will have in turning things around.

So if you've been worrying about debt but you've been concerned about asking advice from a 'corporate undertaker', why not call me, Dr Debt, the company doctor. My number is 01709 331300 and it costs nothing to have a chat about your options.

Ostrich mentality to debt is still a big problem

Sticking your head in the sand will not help deal with debt problems

Research published today shows that many people are too ashamed to ask for help with their debt problems, preferring to ignore them in the hope that they will go away. A poll carried out for 'R3', the insolvency profession's leading association (of which I am a member) shows that 21% of people with debt problems haven't contacted anyone for help because "It's easier not thinking about it" whilst 14% are worried what people will think if they seek help about their debts. In addition, 30% of people with money problems haven't even told their partner or family about their situation.

Unfortunately I see this situation all the time. People come to me when the situation is really desperate, where someone has put off taking advice sooner because they were worried about what people would think or what their partner or family might say. (Sometimes people are even worried about what I would think - trust me, I've seen it all, nothing shocks me any more!)

The old saying 'better late than never' is true and there are things that can be done to ease the situation even when things seem bleak. But the sooner that someone takes advice about debt problems, there will be more options and the options themselves will be more palatable and more attractive to creditors.

So if you are worried about your debts, whether they are business or personal, why not give me a call on 01709 331300. You can meet with me free of charge and I'll help you to find out what all your options are. It's confidential and I promise that I won't judge or be shocked: I'll just try to help.

David Cameron announces proposed change to 'insolvency threshold'

Conservatives indicate willingness to tinker with insolvency rules

On The Andrew Marr Show on BBC1 yesterday, Conservative leader David Cameron announced plans to boost small busineses as part of a package of measures to stimulate jobs, wealth and enterprise and to allow the country to "trade its way out of recession." As well as reducing the amount of time it takes to set up a new business and encouraging social landlords to permit tenants to operate a business from their homes, Cameron announced that a Conservative Government would raise the "insolvency threshold" to £2,000 from the current level of £750. He stated that more small businesses had gone "bankrupt" in this recession than previous ones and that "a number have been pushed there by the government itself."

At present, a creditor can petition for an individual's bankruptcy if they are owed more than £750, whilst a company can be wound up following a statutory demand for a debt in excess of £750. But a company can also be wound up by the court if a creditor obtains a judgment for any amount and is then unable to enforce it - for instance, if bailiffs report that there are no valuable assets to remove. So increasing the threshold for companies won't necessarily make it more difficult for a creditor to wind up a struggling company, but it will give some protection for sole traders, who make up the majority of small businesses in the UK.

The threshold of £750 hasn't changed since the Insolvency Act gained Royal Assent in 1986 so it seems reasonable to revisit it. In the 24 years since the legislation was passed, inflation alone would mean that £750 would be more like £1,700 in today's money. I suspect that the threshold hasn't been revisited sooner because the legislation was poorly drafted: the threshold relating to bankruptcy can be changed by statutory instrument but there is no corresponding provision for company winding-up, making it all a bit messy.

But there is another issue: by raising the insolvency threshold, will this lead to more businesses experiencing further problems of non-payment by customers? Would this send out the wrong message to businesses, encouraging them to delay payment? I hope not.

How to avoid insolvency in the first place: #1

A well-organised business is a successful business

In my years as an Insolvency Practitioner, I’ve found that two things always seem to go hand in hand. These two things are disorganised businesses and insolvency.

We all know that there is a long list of things that we’d all like to get round to doing, but we just haven’t got the time. Some things fit into the category of “nice to do but not essential.” So it would be nice to buy a new plant for the office, or replace the broken clock that is always 15 minutes slow. But these things don’t really damage a business. There’s no need to lose any sleep over them.

But some things are critical and if they get forgotten, the wheels will start to fall off and everything will end in tears. Whether it’s taxing the company van, making sure that invoices are paid on time and decent bookkeeping to make sure that everything is properly accounted for, some things just have to be done. The problem is that it’s easy to concentrate on doing the business, rather than running it.

Happily for smaller businesses, help is at hand. There’s no need to take on extra members of staff as there are a number of excellent virtual assistants, part-time bookkeepers and office support professionals, who can make your life a lot easier. They can spend as much or as little time as necessary, either working in your office or theirs, making sure that all the little (but crucial) things get done. So whether it’s answering the phone in a professional manner, organising mailshots to potential customers or day-to-day bookkeeping, there are plenty of people to turn to.

Try a web search for virtual assistants in your area - or, if you prefer, I can recommend some for you to consider.

http://www.moorheadsavage.co.uk/